trending_upBull Put Spreads Strategy

Generate income with defined risk while maintaining a bullish outlook on the underlying stock

infoStrategy Overview

A Bull Put Spread is a defined-risk, income-generating options strategy that involves selling a higher-strike put and buying a lower-strike put with the same expiration date. This strategy profits when the underlying stock stays above the short put strike price.

listStep-by-Step Process

1
Sell Higher-Strike Put

Sell a put option at a higher strike price (closer to the current stock price). This generates premium income and creates the obligation to buy the stock if it falls below this strike price at expiration.

2
Buy Lower-Strike Put

Simultaneously buy a put option at a lower strike price (further from the current stock price). This limits your maximum loss and defines the risk of the trade, but reduces the net premium received.

3
Maximum Profit Scenario

If the stock price stays above the short put strike at expiration, both options expire worthless and you keep the entire net premium received as profit.

4
Risk Management

Maximum loss is limited to the difference between strike prices minus the net premium received. The long put protects against unlimited downside risk.

calculateExample Walkthrough

settingsTrade Setup

Stock XYZ is trading at $100. You establish a bull put spread:

  • Sell 1 XYZ $95 Put for $3.00 premium
  • Buy 1 XYZ $90 Put for $1.50 premium
  • Net Credit Received: $1.50 ($3.00 - $1.50)
trending_upBest Case: Stock Above $95

If XYZ closes above $95 at expiration, both puts expire worthless.

Maximum Profit: $150 (net credit received)

trending_downWorst Case: Stock Below $90

If XYZ closes below $90, maximum loss is realized.

Maximum Loss: $350 (($95-$90) × 100 - $150)

analyticsOptimal Market Conditions

thumb_upUse Bull Put Spreads When:
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Moderately bullish outlook: You expect the stock to stay above the short put strike but don't need unlimited upside.
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High implied volatility: Elevated option premiums make the strategy more attractive for income generation.
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Want defined risk: Unlike naked puts, your maximum loss is predetermined and limited.
warningAvoid Bull Put Spreads When:
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Bearish outlook: If you expect the stock to decline significantly, this strategy will likely result in losses.
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Low volatility environment: Reduced option premiums make the risk/reward ratio less attractive.
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Major events pending: Earnings or other catalysts can cause unpredictable price movements.

assessmentKey Performance Metrics

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Maximum Profit

Net credit received when both options expire worthless

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Maximum Loss

Strike difference minus net credit received

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Breakeven Point

Short put strike minus net credit received

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